Chap-01.qxd 8/17/04 3:34 PM Page 1 CHAPTER •••• 1 Introduction Leisure Work Recreation Recreation Home-based Travel and away from recreation tourism home Unlimited wants Economics of leisure and tourism Scarce resources Chap-01.qxd 8/17/04 3:34 PM Page 2 The Economics of Recreation, Leisure and Tourism Objectives and learning outcomes • How important are recreation, leisure and tourism to national economies? • Why do these industries provide so many new jobs? • What is the globalization of recreation and leisure? • Are recreation, leisure and tourism shares good investments? • Is the growth of recreation, leisure and tourism sustainable? This book will help you investigate these issues. The objectives of this chapter are to define and integrate the areas of study of this book. First the scope of recreation, leisure and tourism will be discussed, and second the scope and techniques of economics will be outlined. The final part of the chapter explains how the study area of recreation, leisure and tourism can be analysed using economic techniques. By studying this chapter students will be able to: • understand the scope of recreation, leisure and tourism and their interrelationship; • explain the basic economic concerns of scarcity, choice and opportunity costs; • outline the allocation of resources in different economic systems; • explain the methodology of economics; • understand the use of models in economics; • understand the use of economics to analyse issues in recreation, leisure and tourism; • access sources of information. Definition and scope of recreation, leisure and tourism Like all definitions, those pertaining to recreation, leisure and tourism encounter some problems. For example, a common element in many defin- itions of leisure is that of free time. Thus working, sleeping and house- hold chores are excluded. However, should we then include people who are sick or recovering from illness? Similarly, recreation is commonly applied to the pursuits that people undertake in their leisure time. But what about things people do to support their employment in their spare time? For example, is a computer programmer’s use of computers in non-working time a leisure activity? Similar questions arise in defining tourism. The common element in definitions of tourism is that of ‘temporary visiting’. Questions of scope immediately arise. Are people who are engaged in GGGGG 2 Chap-01.qxd 8/17/04 3:34 PM Page 3 Introduction study overseas tourists? Are people travelling on business tourists? Aware of the problems involved, some working definitions of travel and tourism are now attempted. Working definitions • Leisure: discretionary time is the time remaining after working, com- muting, sleeping and doing necessary household and personal chores which can be used in a chosen way. • Recreation: pursuits undertaken in leisure time. Recreational pursuits include home-based activities such as reading and watching television, and those outside the home including sports, theatre, cinema and tourism. • Tourism: visiting for at least one night for leisure and holiday, business and professional or other tourism purposes. Visiting means a temporary movement to destinations outside the normal home and workplace. • Recreation, leisure and tourism sector organizations: organizations producing goods and services for use in leisure time, organizations seek- ing to influence the use of leisure time and organizations supplying recreation, leisure and tourism organizations. Many organizations pro- duce goods and services for recreational and non-recreational use, for example computer manufacturers. Figure 1.1 shows the relationship between recreation, and tourism and the constituent parts are discussed below. Time Other Leisure Work Recreation Recreation Home-based Travel and away from recreation tourism home Figure 1.1 Leisure and tourism 3 GGGGG Chap-01.qxd 8/17/04 3:34 PM Page 4 The Economics of Recreation, Leisure and Tourism Home-based recreation This includes: • listening to music, • watching television and videos, • listening to the radio, • reading, • do it yourself (DIY), • gardening, • playing games, • exercise, • hobbies, • leisure use of computers. Recreation away from home This includes: • sports participation, • watching entertainment, • hobbies, • visiting attractions, • eating and drinking, • betting and gaming. Travel and tourism This includes: • travelling to destination, • accommodation at destination, • recreation at destination. Definition, scope and methodology of economics The nature of economics Resources and wants ••• Economics arises from a basic imbalance that is evident throughout the world. On the one side there are resources which can be used to make goods and services. These are classified by economists into land (raw mater- ials), labour and capital (machines). Additionally we sometimes include the entrepreneur (the person that brings factors of production together) as a resource. On the other side we have people’s wants. The worldwide eco- nomic fact of life is that people’s wants appear unlimited and exceed the resources available to satisfy these wants. This is true not just for people with low incomes, but for people with high incomes too. Clearly the basic needs of rich people are generally satisfied in terms of food, clothing and shelter, but it is evident that their material wants in terms of cars, property, holidays and recreation are rarely fully satisfied. GGGGG 4 Chap-01.qxd 8/17/04 3:34 PM Page 5 Introduction Scarcity and choice ••• The existence of limited resources and unlimited wants gives rise to the basic economic problem of scarcity. The existence of scarcity means that choices have to be made about resource use and allocation. Economics is concerned with the choice questions that arise from scarcity: • What to produce? • How to produce it? • To whom will goods and services be allocated? Opportunity cost ••• Since resources can be used in different ways to make different goods and services, and since they are limited in relation to wants, the concept of opportunity cost arises. This can be viewed at different levels. At the individual level, consumers have limited income. So if they spend their income on a mountain bike, they can consider what else they could have bought with the money, such as 50 compact disks (CDs). Individuals also have limited time. If an individual decides to work extra overtime, leisure time must be given up. At a local or national government level the same types of choices can be analysed. Local councils have limited budgets. If they decide to build a leisure centre, that money could have been used to provide more home help to the elderly. Even if they raised local taxes to build the new leisure centre there would be an opportunity cost, since the taxpayers would have to give up something in order to pay the extra taxes. Similar examples exist at a national government level. For example, subsidizing the arts means that there is less money available for student grants. Opportunity cost is defined as the alternatives or other opportunities that have to be foregone to achieve a particular thing. Figure 1.2 illustrates this concept by use of a production possibility frontier (PPF). It is assumed first 700 600 500 400 300 200 PPF Units of leisure goods 100 0 Figure 1.2 0 100 200 300 400 500 600 700 Opportunity cost and the Units of other goods PPF 5 GGGGG Chap-01.qxd 8/17/04 3:34 PM Page 6 The Economics of Recreation, Leisure and Tourism that the economy only produces two types of goods (leisure goods and other goods) and second, that it uses all its resources fully. Curve PPF plots all the possible combinations of leisure goods and other goods that can be produced in this economy. It is drawn concave to the ori- gin (bowed outwards) since, as more and more resources are concentrated on the production of one commodity, the resources available become less suitable for producing that commodity. Curve PPF shows that if all resources were geared towards the production of leisure goods, 600 units could be produced with no production of other goods. At the other extreme, 600 units of other goods could be produced with no units of leisure goods. The PPF describes the opportunity cost of increasing production of either of these goods. For example, increasing production of leisure goods from 0 to 100 can only be done by diverting resources from the production of other goods, and production of these falls from 600 to 580 units. Thus the opportunity cost at this point of 100 units of leisure goods is the 20 units of other goods that must be foregone. Similarly, if all resources are being used to produce a combination of 400 units of leisure goods and 400 units of other goods, the opportunity cost of producing an extra 100 units of other goods would be 100 units of leisure goods. Allocative mechanisms ••• The existence of scarcity of resources and unlimited wants means that any economy must have a system for determining what, how and for whom goods are produced. The main systems for achieving this are: • free market economies, • centrally planned economies, • mixed economies. Free market economies work by allowing private ownership of firms. The owners of such firms produce goods and services by purchasing resources. The motive for production is profit and thus firms will tend to produce those goods and services which are in demand. Figure 1.3 shows the market mechanism in action. Centrally planned economies do not allow the private ownership of firms which instead are state owned. Production decisions are taken by state plan- ning committees and resources are mobilized accordingly. Consumers gener- ally have some choice of what to buy, but only from the range determined by state planners. Mixed economies incorporate elements from each system. Private own- ership of firms tends to predominate, but production and consumption of goods and services may be influenced by public ownership of some enterprises and by the use of taxes and government spending.